Unusual Options Activity Review for Wednesday, November 14, 2012
Wednesday’s Bullish Trading
Pulte Group (PHM) drops 94 cents to $15.23 amid weakness in the sector Wednesday. Names like Toll Brothers (TOL), Lennar (LEN), and Beazer Homes (BZH) also fell. SPDR Trust (XHB), which holds shares of leading companies from the industry, dropped 2.7 percent on the day and is now down 9.1 percent from the multi-year highs set just two weeks ago. On the options front, the order flow was interesting, as one investor bought a 4,300 contract block of PHM December 19 calls late in the day for 12 cents per contract. A total of 5,638 contracts changed hands. December 20 calls on the stock were busy as well, with 5,284 traded. At the end of the day, about 25,000 calls and 7,800 puts traded on Pulte Group. Some investors were possibly short the stock and are buying calls to help hedge recent gains. Or, others might be taking a contrary stance and opening bullish positions on the view the decline is overdone. Still others might be selling calls to close positions on diminishing hopes for a substantial move higher in the stock in the weeks ahead.
Bullish trading was also seen in KB Homes (KBH), Clearwire (CLWR), and AVG Technologies (AVG).
Wednesday’s Bearish Trading
Verizon (VZ) dropped 30 cents to $42.24 and was one of 29 Dow stocks to finish with losses Wednesday. Only Cisco, which saw a lift from earnings news, moved higher within the industrial average Wednesday. Options volume on Verizon included about 59,000 puts and 12,000 calls. The top trade was a spread, in which the investor was apparently selling 7,500 November 44 puts on VZ at $1.20 and buying 7,500 December 44 puts for $1.68. The spread traded a total of 25,000X on the day and appears to be rolling of a bearish position, or a hedge, out an additional month. That is, they are selling-to-close the Nov 44 puts before the expiration this week. Now, they are opening a similar position in the December contracts that expire in five and a half weeks.
Bearish trading was also seen in CVS, Hospira (HSP), and AON.
Index Recap
CBOE Volatility Index (.VIX) hit a morning low of 15.93, but finished up 1.27 points to 17.92 after the S&P 500 faltered in afternoon action Wednesday. SPX lost 19.04 points to 1355.49 and settled at its worst levels in months. VIX moved higher and trading was active in the VIX pit. 385,000 calls and 132,000 puts traded on the index. January 25 and 35 calls were the most actives. More than 60,000 traded in both and spread-trading was driving much of the activity. In morning action, one block of 22,000 January 25 calls traded on VIX for $1.49 when the market was $1.40 to $1.50. At the same time, 22,000 January 35 calls traded at 52 cents per contract when the market was 50 to 60 cents. The Jan 25 ? 35 call spread, for 97 cents, was possibly bought to hedge the risk of a dramatic spike in volatility heading into 2013. If so, the position reflects a bullish position on VIX, but a bearish view on the overall market ? as VIX isn’t likely to spike to the mid-30s unless there is a dramatic drop in the S&P 500 before the January 2013 expiration.
Analyzing the ETF Market
iShares FTSE NAREIT Mortgage Plus Capped Index Fund (REM), which is an exchange-traded fund that holds shares of Real Estate Investment Trusts [REITs] like Annaly Capital (NLY) and American Agency Capital (AGNC), lost 46 cents to $13.11 and has now dropped more than 16 percent from the 52-week highs seen less than two months ago. REITs pay relatively high dividends and some investors might be selling shares on the view that favorable tax treatments for dividends will be abolished under the Obama administration. REITs have been under pressure and on the options front, a noteworthy trade on the ETF was a block of 8,400 December 13 puts for 55 cents per contract. The position will open the largest block of open interest in REM and is possibly a view that the sector will remain weak from now through mid-December.
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